A particular countrys treasury issued a 35year bond on Febru

A particular country\'s treasury issued a 35-year bond on February 10, 2011, paying 5.250% interest. Thus, if you bought $100,000 worth of these bonds you would receive $5,250 per year in interest for 35 years. An investor wishes to buy the rights to receive the interest on $100,000 worth of these bonds. The amount the investor is willing to pay is the present value of the interest payments, assuming a 3% rate of return. Assuming (incorrectly, but approximately) that the interest payments are made continuously, what will the investor pay? (Round your answer to the nearest cent.)

$______

Solution

If 3% rate of return is assumed then present value of 5250 for 35 years is calculated as follows:

NPV will be:

Hence investor can pay 112807.90 dollars.